Are the big holding companies weighing a cull of their creative agency brands?

Are the twin pressures of client demands for ‘transparency’ – which usually means lower prices – and a slow growth world economy finally hitting the big holding companies?

Over the past decade the likes of WPP, Omnicom, Publicis Groupe, Dentsu and Interpublic have seemed to defy gravity in, mostly, delivering higher returns in the face of such pressures. In part because of their ingenuity in finding new sources of revenue, through developments like programmatic advertising.

But media agency margins are now under more pressure than ever following the US Association of National Advertisers’ investigation into undisclosed media owner rebates and creative agencies, often under a holding company umbrella, are finding themselves pitching for work at cost with profit some way down the line via payment by results. As in the recent McDonald’s creative pitch, won by a new Omnicom/DDB entity.

The upshot of the latter is that one holding company, Publicis via Leo Burnett in the case of McDonald’s, loses profitable business while another gains it on terms which may not be profitable at all. Ultimately this will impact all of them.

New Ogilvy worldwide boss John Seifert tells Campaign today that he’s set on rationalising the agency’s multifarious offers – it operates under OgilvyOne, Ogilvy Change, Ogilvy Entertainment and Neo&Ogilvy (goodness knows what that is) among many other noms de plume. He says this is confusing for clients while what matters is that “we’re about making brands matter.”

He goes on: “Sometimes people think integration means a generalist view of the world. Nothing could be further from the truth in terms of our strategy. We want more specialist skills – we just want to make it easier for people to connect and work together.”

Which is all fine and dandy but it probably means fewer people too. Each OgilvyOne, or whatever, has its own management, with CEOs, CFOs, managing directors or partners and all the rest of it. Get rid of some of these and your margins will recover, for a while at least.

The danger, of course, is that the agency’s offer actually reduces: there are fewer people and therefore fewer skills. Clients may then look elsewhere or stay where they are but pay less.

Across London’s adland there’s been a constant stream of departures from what we might call upper middle level management over the past couple of years. BBH has dispensed with numerous managers who’ve tried and failed to replicate the glory days of Bartle, Bogle and Hegarty, ambitious newbies on the holding company front like South Korea’s Cheil and a number of US-owned agencies have found that parachuting people in from elsewhere doesn’t necessarily mean that business follows. Result: more such people on Linkedin.

Interpublic-owned MullenLowe has dispensed with just about all the former Lowe management, the exceptions being Helen Bell who looks after biggest account Unilever and Tom Knox, who’s president of the IPA. Digital agency Profero seems to havetaken over MullenLowe in the UK. The same may happen at WPP-owned RKCR/Y&R with Wunderman in the driving seat.

The logical consequence of all this is fewer holding company owned agency brands. At best they may become ‘white label’ operations concealing a creative department that works across the board, hand in hand with a production capacity intended to be quicker and cheaper on the nuts and bolts of accounts. Ultimately these will become one and the same thing.

Next week Publicis Groupe, the big loser in the round of creative and media reviews, is having a confab in New York to outline its “vision” of a silo-free future. You can just about guarantee it will mean fewer people and may even encompass the eventual demise of some of adland’s famous names.

Update

I’ve been reminded that Publicis Groupe now has Publicis One outside its top 20 markets: Publicis, Saatchi and Burnett under a single management team with a single back office and so on. A template for the future?

About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.

One comment

Stephen, in your article you quote press speculation on the McDonald’s review as a fact. Your assumption that agencies are working at cost is false. Also, whilst it is a private matter between McDonald’s and their agency, it is likely that if the agency does good work it can make very good margins indeed. New remuneration agreements do not imply lower margins. They may reflect what many forward thinking agencies have been asking for – to be paid for their impact on business results.